What separates a business from a company?

When I finished college, and realized I was done playing football, I immediately turned the focus of my attention towards entrepreneurship. I'd earned a degree in Business (Managerial Economics, actually) and obviously loved sports enough to devote most of my life to them. There seemed, then, to be no better path for me to pursue than that of entrepreneurship. With my passion, desire, and commitment; how could I fail? (That was rhetorical, of course; you've probably already got several ways and reasons, but hold your questions for after the program, please.)

I quickly enlisted the help and support of like-minded individuals who I knew shared my thirst for competition and success, no matter the setting. Not unlike with many a startup, these friends and former college teammates became executives and key cogs to NextLevel, the name we branded the company.

NextLevel was supposed to be the ultimate destination for high school and junior college student-athletes, providing myriad services to help them continue their athletic--and academic--careers. Based on three tenets, what we coined the 3 E's, NextLevel addressed the Educational, Exposure, and (Athletic) Efficiency needs of these kids by offering academic assistance and guidance, recruiting exposure to viable opportunities via connection with coaches, and training tools to help maximize athletic potential.

With an online presence, including one of the first searchable athlete databases, I was certain we'd ride the wave that was the Internet Boom all the way to millionaire status. But a funny thing happened on our way to the bank, as they say. First, while we'd been really excited about the potential of the online tools we were developing, we realized there was more interest in our physical services. We learned this almost by accident, which is often the case with new companies. While attending events like volleyball invitationals and flag football tournaments to collect profile information for our athlete database, we received repeated inquiries and requests to conduct training clinics. The vertical jump competition we held, which came with tested and proven techniques to "improve your vertical in five minutes" was certainly a factor. It's amazing how much parents are willing to pay to help get the most out of their young athletes. The fact that my fellow owners and I were still young and in relatively good shape, not far removed from our own playing days, also didn't hurt.

So while we'd hoped NextLevel would blossom into one of the Internet stories we were all hearing about on a regular basis, we were smart enough, albeit a little late, to listen to our customers. As a result, over the next several years, we conducted dozens of small (usually 1-2 days) clinics, ran several sports (mostly football, but also field hockey and basketball) combines to showcase talent, and served as the speed, strength, and conditioning company for several high school sports programs.

But eventually the company reached its apex and we'd extracted most of the value out of it that we could. The main reason we ultimately shut down operations was the same reason I should have termed our undertaking in the beginning of this paragraph not as a company but, instead, as a business. It is the same challenge Tim Ferris refers to in his book The 4-Hour Workweek- the owner as a bottleneck problem. I was the bottleneck. I was the problem. Well, not exactly. I was the barrier to growth, the obstacle that stood between our baby business becoming an adolescent company. I'd allowed myself, and in some cases the personalities and talents of the other owners as well, to become synonymous with NextLevel. Kids loved us. Coaches were impressed with our knowledge and ability to relate to their athletes, reaching them in ways they could not. And it seemed there weren't enough weekends in the year to meet the growing demand for our services.

But therein lies the problem. We thought about, and even tried to, hire coaches and trainers to conduct additional parallel camps and clinics. But whether we were too picky (we were) or the applicants were not qualified (they weren't) or the customers just wouldn't accept anyone other than the NextLevel team they'd met or heard about (they wouldn't); we were unsuccessful. Ultimately, we realized that although we had a viable business, we didn't have a company. And probably couldn't. Because we'd based our value and offering largely on individuals, the business wasn't scalable. We certainly could have documented every part of the business, making sure to note every process and procedure so that we could ultimately share that information with other employees who could then carry them out. I learned this in The E-Myth-Revisited by Michael Gerber, a must read for any entrepreneur or small business owner. But by then we'd gone too far down the path. Finding the perfect people to take over the operations, meticulously recording and teaching the processes that made us successful, and reluctantly resetting customer expectations was too daunting an undertaking for us to pursue.

But as is always the case, with every misstep (it's not a failure unless you fail to learn something) comes an opportunity for growth. We learned a great deal from this experience. Most notably might be a simple 3-step approach that, in my opinion, all entrepreneurs should take.

First, ask yourself this simple question: do you want to have a business or a company? Having a small or medium-sized business, such as a local dry cleaners, a catering business, or a consulting practice are perfectly fine and can yield great financial reward and satisfaction. But these business usually require the presence and expertise of the owner. If, instead, you dream of building a company that will survive without you, the approach must be much different.

Secondly, if you decide you want to grow a company and not just a business, every decision should be approached from the standpoint of automation and simplification. The motivation is simple. Make yourself expendable. In fact, the goal should be to make every person in the company expendable- obviously not in reality, but certainly in theory. Instead of basing success on individual performance and achievement, systems should be the main engine of growth. I'm not saying that people--specifically hiring the right people--is not important. I am saying, though, that they--those bright, energetic, and talented people--aren't scalable. And to build a company, as much emphasis should be placed on what gets done and how it gets done as to who does it.

And third and finally, make a commitment early and often to being vigilant in creating systems and processes that make running and growing the company feasible. At every turn, ask yourself not only "how can we better do this?" but also "should we be doing this?" If a process requires an extremely smart person to carry out, then it's not replicable and probably should be replaced or significantly simplified. Test every assumption. Continue to refine and tweak your business, building it so that eventually--brace yourself--it won't need you.

Indeed, at the end of the day, what separates a business from a company? Scalability, that's what.

Comments

Excellent article. I have worked for a number of entrepreneurs who either failed to get this concept, or when push came to shove, could not make that final step to be expendable. And it is not an uncommon problem, many of the skills necessary to start and build a business become hurdles when it is time to become a company.

When you start a business, one of the first steps needs to be a plan that includes how that business will become a company.

The article above regarding the difference between a business and a company was very well done. I completely agree and have experienced that scenario on more than one occassion. As an experienced CFO I have used the tag line that my goal was to make my job expendable. While that is at times received as an oxymoron, I use it as a teachable momoent to talk about empowerment for others as it relates to their specific duties and having the courage to be innovative. Scability that retains quality and brand are true keys to sustained business and therefore a company's success.

The article makes an excellent point about developing processes to enable scalability, which can be done within "a business" context [a sustainable business]. I like to think of a business as a focused set of activities around a central aspect - market, product/service, customer segment - while a company is an organizational form which can be designed to operate multiple businesses.